Rural Broadband Program Misses the Mark

Matthew Glans is a Senior Policy Analyst at The Heartland Institute. Glans joined the staff of The Heartland Institute in November 2007 as Heartland’s Legislative Specialist on Insurance and Finance. Glans’ responsibilities include interacting with elected officials and staff on insurance and finance issues; tracking new legislation; and drafting responses to emerging issues via talking points, news releases, and op-ed pieces, with the goal of educating legislators and informing them about free-market ideas.

Glans earned a Master’s degree in political studies from the University of Illinois at Springfield. He also graduated from Bradley University with a Bachelor of Arts degree majoring in political science. Before coming to Heartland, Glans worked for the Illinois Department of Healthcare and Family Services in its legislative affairs office in Springfield. Glans also worked as a Congressional Intern in U.S. Representative Henry Hyde’s Washington D.C. office in 2004.

Over the past several years, the federal government has launched several programs to encourage the development of new and advanced telecommunications services in all areas of the country. The two most prominent efforts are the Connect America Fund (CAF), a spinoff of the Universal Service Fund (USF), and the Rural Utilities Service Connect America Fund (RUS), a loan program administered by the U.S. Department of Agriculture as part of the Farm Bill.

Both the RUS loan program and CAF were launched in an attempt to further expand deployment of broadband Internet services to areas of the country the government believes are underserved. Both programs use taxpayer dollars chasing a goal that has already been achieved: The vast majority of Americans (around 95 percent) already have access to some form of broadband coverage.

“Support for programs like the RUS comes from the mistaken belief that private utilities cannot or will not deliver their products to certain areas. Like most allegations of market failure, the government’s solution is a thinly-veiled excuse for unnecessary spending that harms private entrepreneurs and supports political allies while wasting taxpayer money.”

Failure to Focus

The RUS loan program was established by Congress in the 2002 Farm Bill. It is designed to provide loans to bring Internet broadband service to rural communities either unserved or underserved by private Internet providers. The RUS generally defines rural communities as municipalities with populations of less than 20,000. Despite this standard, which was tightened in the 2008 Farm Bill, one of the most significant problems with the RUS, according to its critics, is its ambiguity over what areas qualify as rural and underserved.

Two separate reports from the USDA in 2009 and 2012 found the RUS did not maintain its focus on rural communities. The 2009 report from the USDA’s Office of Inspector General found the RUS had funded broadband services in 148 communities within 30 miles of a city with 200,000 people, including several communities near the Chicago and Las Vegas metropolitan areas.

“Well-intentioned or not, there’s no rational justification for RUS to lend money for rural broadband development to companies that serve wealthy suburbs. We simply cannot afford such excesses if we are to stand any chance of creating a sustainable fiscal future.”

This problem remains unresolved; a 2012 report from the USDA also found the RUS does not target the areas it is supposed to target: “We found that RUS had not maintained its focus on rural communities most in need of Federal assistance. This is largely because its definition of ‘rural area,’ although within the statutory guidelines, was too broad to distinguish between suburban and rural communities. As a result, RUS issued over $103.4 million in loans to 64 communities near large cities.”

Waste and Fraud

In a Town Hall essay, Kelly Cobb of the Cato Institute argued programs like the RUS and CAF are plagued by waste and abuse that is difficult to track.

“These costly and duplicative programs are plagued with the same waste and abuse – only this time no one is sure exactly how much. The loan program also picks winners and losers in the market; taxpayer-funded companies have a competitive advantage over others with only private capital. By 2009, over three quarters of the loans went to communities that already had broadband service – and nearly 60 percent of the taxpayer money went to places with two or more providers.”

There have been efforts to reform the RUS. The 2008 Farm Bill attempted to narrow the definition of rural communities and met with some success, but it did not eliminate the waste. During the debate over the 2013 Farm Bill, Senators Mark Warner (D-VA), Mark Kirk (R-IL), Mike Crapo (R-ID), Jeanne Shaheen (D-NH), and Michael Bennet (D-CO) pushed a package of reforms in an amendment that was accepted by the Senate but never implemented. The amendment made several major improvements to the RUS program: Ittightened RUS requirements so that 25% of the households in a proposed service area be unserved by existing providers while adding new measures to ensure transparency and accountability.

Just a Slush Fund

In a joint statement, a coalition of free-market, consumer, and tax watchdog groups including the Competitive Enterprise Institute, R Street, Americans for Prosperity, and Americans for Tax Reform voiced their opposition to the RUS loan program:

“The Rural Utilities Service is a classic example of waste and market distortion. In addition to the cost, in many areas, the practice of guaranteeing loans serves to undercut existing private-sector investment.”

Broadband slush funds, paid for by taxpayers everywhere, are a drain on consumers and totally unnecessary. The vast majority of Americans (around 95 percent) already have some form of broadband coverage, and the market is doing a great job of bringing new broadband services to where they are in demand. The RUS and programs like it are yet another subsidy wasted on a problem that does not exist.

Rural Broadband Program Misses the Mark was last modified: November 27th, 2013 by Matthew Glans